Big Banks
Stocks were up a lot today on good earnings news – and in the face of a lot of skepticism on Wall St.
The Dollar lost some of its recent gain, and the rest of the markets moved accordingly – gold up, oil and gasoline up, bonds up.
In the news today…..
Wild Card – I have warned about a potential war in the middle east with Iran. The US is preparing for something; that’s for sure. The US has moved 4 Patriot Batteries into the Middle East area (these are anti-ballistic missile, ABM, defense systems.) In addition, the US is moving ABM equipped frigates into the eastern Med. These are the most sophisticated weapons that the US has in its arsenal, and the US wouldn’t be moving them there if there wasn’t some sort of threat. So, what is the threat? I have always suggested that a strike against the Iranian nuclear facilities was a possibility – either by Israel and/or the US. The movement of these systems is something that is planned months in advance – so there is some long term plan at play. Stay tuned.
UBS could fail – if the UBS/IRS deal falls apart – this according to the Swiss government. If the US drops the US license to operate, then UBS could go bankrupt. I consider this a political move in Switzerland to allow the sharing of UBS client information with the US authorities – a politically dangerous move. This came after a Swiss Court ruled that giving the private banking info to the US was unconstitutional in Switzerland.
China Import Trade Sanctions – could be coming as China is mad at the US for selling arms to Taiwan in the sum of $6.4B, and Boeing, Lockheed Martin, Raytheon could be targeted. Of these – Boeing would be hurt most as it sells lots of airplanes to China.
President Obama – unveils a 2011 budget of $3.83TRILLION which would have $1.56TRILLION. That means that 40% of this budget will be borrowed from future generations. This is just the sign that will worry the debt markets – US Treasuries. When these stop selling to foreigners, and the FED stops buying them, or aiding in their purchase – WATCH out below.
Tonight’s Dinner Conversation…..
Should big banks be broken up? It has been proposed that Commercial Banks and Merchant Banks be separated. In other words, the traditional role of banks to take deposits and lend funds should be separated from the risky business of hedge funds, and trading on the bank’s own account.
What do you think should be done to protect the US from a future meltdown? Remember, that nothing has been done to prevent what happened in 2008 from happening again.
Here are the last numbers for today:
Dow Jones 30 Industrial – 10,186 (up 118)
10 Year Treasury Bond – 3.65% (up 0.04%)
Euro – $1.3934
Gold – $1106 (up $23)
Oil – $74.80 (up $1.91)
Gasoline – $1.93 (up $0.02)
The fundamentals don’t look too good do they? We have unsustainable debt and the only solution is to add more debt to cover payments due now. Sounds like a debt death spiral to me. However, what other country doesn’t have the same problem? We think our debt problem is bad (and it is), but other countries have even higher debt to GDP ratios. That’s a scary thought.
You asked what to do to prevent a future meltdown. Well, it seems the current meltdown is well underway since 2000 (right in line with a K-wave). We didn’t see our problems until 2008 because spending was upped by Bush and interest rates were dropped by the Fed. Just proves that masking a problem doesn’t make it disappear.
If/when we survive this downturn, I’d like to see simple safety measures taken to limit unsustainable speculation and short term thinking/risk taking.
Here are a few ideas:
- Yep, new version of Glass-Steagall. Separate commercial banking from more risky investment banking.
- Limit home loans to 80% LTV (people will just have to save and borrower from their parents like before)
- Limit home loans to full doc (don’t like it, then pay cash)
- Limit explosive derivatives
- Limit leverage on Wall Street to much lower levels
- Institute debt free money (directly issued by the USG)
- Eliminate defined benefit pensions (unsustainable ponzi scheme)
- Eliminate labor unions (especially for government employees) – this would drop wages so the US can compete globally, bring manufacturing back
This is a shortlist of needed reforms but it seems hard to get them implemented when we have such huge structural problems now AND entrenched special interests.
I guess we’ll just “muddle through.”